Modernize Newspapers

Evolution, not Revolution in the Newspaper Business

As we talk with partners, prospective investors, and other folks on the periphery of our business, we hear a consistent theme -- folks are skeptical of the future of the local media business.

Certainly, local media faces big challenges as we approach 2010.  Advances in the Web have taken away a number of core businesses like classifieds and personals, and a variety of new advertising opportunities have come about to dilute the importance of local media for reaching local audiences.  As such, many local media businesses are reducing staff, focusing on core competencies, and aggressively working *with* new technologies instead of against them to modernize.

One such trend that I think we'll see repeated is the move by the Dallas Morning News to reorganize around business segments.  Quoting further, "collaboration is expected to 'bring new products that consumers want to the market more rapidly.'"

Wow.  Think about that for a moment -- journalists and their management are now not just charged with producing good journalism, but also with thinking of their product more expansively and with more agility.

At one time, journalism as field was both closely guarded and sacrosanct -- it was defined as something very specific with rigid guidelines for what was and what was not permitted.  Perhaps social media, link sharing and the blogosphere have, as many have suggested, redefined journalism.

What I like about this reaction from the Dallas Morning News is that they've recognized that their product is more than just traditional journalism.  I'm sure we'll see a number of interesting advancements come out of this -- and I suspect other newsrooms will evolve similarly.

Many folks assume that the local media business is dead.  But remember, they do have great brand assets in every city.  They remain a primary and important influence in each community, and they're leading the way in keeping citizens of every local city and metropolitan area informed.  They're in flux right now, but they're going to emerge better, stronger, and much more competitive as they evolve in coming years.  Don't count them out.

Transforming Media - Part 2: Building a Technical Advantage

Last time, I presented the idea that media companies need to consider restructuring by offloading their internet business to a smaller, more agile company. Then what?

The second major piece of the restructuring puzzle is to develop a technical backbone that takes advantage of the company's strengths.

Media companies have two great advantages - local knowledge and local readership. Internet giants like Google and Yahoo are not going to develop first hand knowledge of your local area. They are in the business of organizing information, not understanding local culture. Learning what the people of Austin, Texas, like and want is not something you get from a computer. You get it by living and working in Austin.

Serving that local market in the Internet age will require different cost structures. Not everything that used to work will continue to work. Every dollar made from print adversing will not necessarily be replaced by a dollar of online advertising. In some cases, it may be a quarter, or a dime.

All hope is not lost, however. There will be new, innovative technologies that enable local businesses to connect with their customers. It started with simple banner and text ads, but innovation is not even close to stopping there.

Every twist on online advertising will require creative, quick thinkers who can develop software at breakneck paces. Some ideas will work. Most will fail. As a media company, youÕll need to place bets on new technologies early and often.

But how? Creating a strong technical team capable of cranking out advertising products at a pace more normally associated with a silicon valley startup is a massive challenge. I'd go as far as saying it's almost impossible for a large media company.

But what internet media companies can do (that most do very poorly today) is build a technical framework into which they can plug innovative products created by partners, whether those parters are Internet giants like Google, or 2 guys in a San Jose basement.

Some keys to successfully creating a flexible technical backdrop for a local media company:

• Forget about building websites and design. Extremely talented web-oriented graphic designers can be outsourced project by project. You'll get high quality, fresh designs without the overhead of full time employees.
• Concentrate on the boring stuff. The back-end systems are what matter. The goal is to make it simple and easy for your advertising and content product partners to integrate with your websites.
• Hire Internet people, not media people. Make no mistake - this technical transformation is not trivial - you will need lots of people on the cutting edge of technology to pull it off. Find a way to get them on board. Learn what motivates them and let them run. Hint - it's not money or ping pong tables.
• Single sign-on. It's a requirement - don't just ignore it and pretend it isn't. Nobody wants to sign into your newspaper website, and then also sign up with a different username for one of your partner's sites (which, by the way, might look just like yours). It's confusing, unnecessary, and a difficult problem to solve. But solve it.
• Manage your data. User lists and contact info will be fragmented throughout your organization if you follow this strategy. Things like opt-in status, unsubscribes, and mailing lists will be a nightmare to integrate manually. Automate this data integration. Again, it's a challenging task, but it has to be done. Data is too important and valuable to keep sectioned off in silos because "the system" couldn't handle it properly.
• Remove hurdles with flexible technology. Suppose an advertising product vendor wants to ask a consumer to sign up for a newsletter on your newspaper's signup page. Not only should this be possible, but the end result should be a disciplined flow of data, not a haphazard collection of incongruent lists. The answer to a request like this should always be "Yes, you can do that, but here are rules.",  not "The system can't do that." or "yeah, but we'd have to keep separate lists".
• Provide an API. Any reasonably competent software developer should be able to figure out how to build a product that integrates with your platform without talking to anyone at your company. That includes, signup, authentication, payment, permissions, unsubscribes - the whole nine yards.

The theme here is to be the glue that collects and stores the content and information that makes a media company valuable and outsource the details of the rapidly changing internet marketing world. If you do this, you will be able to create a process of rapid experimentation without having to bet the company on any one technology development effort.

It's going to be challenging, but whoever does this well will build a winning media company in the years to come.

Is Local the next bubble?

With today's announcement of Gowalla's $8.4 million Series B investment, I think you can qualify "local" as the new "black" in the tech field. 

Clearly the opportunities are significant -- the newspaper business is being modernized, old business models are failing and being replaced by new ones, advertising is becoming increasingly mobile and social, and the long tail of local services has not yet been modernized & put online to the point that it will in coming years. 

Mobile GPS is spawning location-based services that will likely be a critical part of the portfolio of products and services for the tech giants moving forward.

So the trend continues -- who knows what is next?  All I know is that it is an interesting place to be, and it's where the action is at the end of 2009.  We're having a great time with it at Notice Technologies, and we'll have some very interesting things to announce at the start of 2010!

Transforming Media: Part 1 -- Financing Creative Destruction

The future of the news industry, both print and television, is online. That doesn’t mean that people will not consume news while sitting on the couch or at the breakfast table. But that news may be displayed on a TV-like display or a digital print device like Amazon’s Kindle - not on paper or broadcast TV.

Traditional print and broadcast television will soon be relegated to the past. The writing is on the wall. You need not look any further than the financial statements of the major newspapers to see that this transformation is underway. Subscription revenues are falling, and internet ad revenue is a growing percentage of total ad revenue.

There is also good news in those financial statements. Internet revenues are today only a small percentage of total newspaper revenues. The lion’s share of the “creative destruction” is still ahead of us - and local media companies are sitting in a perfect spot to take advantage of that fact. But how?

Online advertising is an immature industry and changes rapidly. Old line media companies, often saddled with debt, do not. That has to change, and there are two components to that change - corporate transformation, and technical focus.

Many major media companies have lots of debt. With hard assets like printing operations and broadcast infrastructure, this debt makes sense. It maximizes the return on investment, and traditional print and broadcast media have been stable enough to support fairly aggressive financial leverage. That is about to change.

The online world is laden with risk - it is rapidly changing and unstable. This is not a good time to build up debt. Flexibility is the key to success.

So what is a media company to do? One strategy would be to spin off Internet related assets into a debt-free company. This is great for the newly created Internet media company- you get a smaller, more risk tolerant organization that is primed for growth into the new Internet media industry.

But what of the other side? The old broadcast and print company, now stripped of it’s higher growth Internet components, will be left with all of the pre-split debt. Unfortunately, this company will have to be managed as if it were going to disappear (or at least shrink dramatically). That means aggressive payment of debt and reduction of workforce as the market shrinks. It will be painful, but it’s the only choice. The alternative is bankruptcy and eventual liquidation.

Fortunately, there is still time for this. Broadcast and print are still producing significant revenues. There is still hope for an orderly contraction of a traditional media company, debt and all. I do not believe this window will remain open for very long. The more traditional advertising revenues decrease, the less likely it will be that a split like this will be viable. Once that window closes, it will be gone for good. Keeping the businesses together would exact a toll on the online business unit as it would be forced to operate in a print-dominated world as the company would be forced to cling to a declining  print-heavy revenue stream just to survive. 

The important concept here is to take the small and growing piece of the media business and put it into an environment where it can thrive while the option is still on the table.

Coming up next - part two of the transformation: building a technical backbone.

Murdoch, et al to Google: "We don't want you here"

Over the last few weeks, the idea of banning Google from crawling newspaper web sites has gathered steam.  It started with Rupert Murdoch who suggested that News Corp web sites would be blocked from Google's index.  Now MediaNews Group and A.H. Belo (which collectively control 11 of the top 100 newspapers in the US & other major media properties) are considering the same move, with rumblings that many more may follow suit.

At issue is a fundamental question that industry observers have asked for many years -- "is the traffic provided by Google a net positive or net negative for the newspaper business?"

But the question behind the question is more about monetization.  Should Google provide a free index of available news for given search terms... and should Google benefit on the backs of content and news providers?

Local newspaper and television web sites provide a service to the local community -- journalism that informs the community and provides a necessary check on government and other local authorities.

Similarly, Google aggregates news for the convenience of consumers.  It also provides local news outlets with traffic and exposure to people all over the world.  This traffic can be great for raw page view numbers and other metrics, but it's conversely also difficult for a local media outlet to monetize.  If a significant portion of traffic for a newspaper web site comes from other parts of the country or the world, it is bringing a wealth of people to the web site but very few of them are likely to respond to a local advertisement.

Therefore, it is good for reach but it also dilutes the advertising product that is intended for the local audience.  The numbers are there, but the performance of the advertising suffers, and local online ads are thus that much harder to sell.

I am personally torn on this one -- I see both sides of the argument.  I'm sure I'll comment more on this as time progresses.  But this move does tell us a few things today:

1. Newspapers want to take back control and ownership of their content.  Google is the first target, because they are generating obvious economic value from indexing news site content likely at the expense of newspapers.
2. Inclusion in search results has reduced newspaper and television web sites to dumb content machines, and leadership at major media outlets has taken notice.
3. Continued commoditization of newspaper content can't work long term for the media business.
4. New technologies, if not properly utilized and harnessed, will present a real threat to the media business.  Therefore, it is the job of big media to figure out where to limit new technologies and where to partner.

We've all heard the saying "if you can't beat 'em, join 'em."  I'm not saying this strategy can't work, but it's certainly a possibility that as a result, the news business will ultimately think opportunistically about working with Google.  This move is a first step towards one of two conclusions -- success or partnership.  Who knows where this is headed.

The News Comes to Us Now

If a newspaper makes a website and nobody sees it, does it exist?

 

It's hard to think up a piece of the journalism puzzle that isn't changing these days. Advertising revenue is shifting online, as are newspaper readers. Television viewers are no longer constrained by time - just as 24 hour news networks changed the 5:00 news, the internet has changed the 24 hour news networks.

 

The place where people go to get their news continues to evolve. What we used to read in a daily paper became what we saw on twice-daily TV news programs. Then we could turn on the TV at any time to get the news - the 24 networks basically repeat the same things every half hour or so. But why do that when the web is around - just fire up your browser and check out the news on the website with no waiting required.

 

Just when you thought the immediacy of news was tapped out, social media like Twitter and Facebook hit the scene. Consumers of news no longer need to go to a destination (TV, radio, newspaper, website) to keep current. The news comes to us now through our Twitter feed or facebook page with no effort requried.

 

Read that last sentence again - the news comes to us now.  The same could be said for advertising as well.

 

The problem that many news organizations are having is that they are not aggressive enough. Stop trying to get the people to come to you. You need to go to the people. Social media and web technologies allow you to do this. We are entering a hyper-competitive era in the news business, and it's not about to end any time soon. If you don't know the answer to the following questions, you need to find out fast:

• How many Facebook users are in your metropolitan area?
• How many people use Twitter in your city's downtown zip code?
• How many people receive Twitter messages from Barack Obama?
• How much does it cost for Barack Obama to send those messages?
• How much should an ad in a Twitter or Facebook stream cost?
• What is a Twitter account worth?

These questions are just a starting place. Look them over. Find the answers. You'll find they paint a picture of the future.

Newspapers as Local Tech Resellers

Much attention has been given to old business models as folks in the local media business struggle to figure out how to make newspapers economically viable.

I have an idea that I'd like to throw into the ring -- turn newspapers into resellers of technology products to the local market.

Newspapers have a large local sales force that understands the need of local businesses.  Sure, in some cases, the sales force at your local newspaper is nothing more than a group of semi-qualified "order takers", but if that remains the case then it would behoove each local paper to get rid of everyone on staff and outsource sales to a call center in India.  "Order takers" have to become more economically viable, or they'll be replaced or eliminated over time.

Local businesses need help navigating technology.  Even in 2009, a lot of people don't understand the value of technology and how it can (and often is) harnessed to help businesses be more productive, advertise better, or provide better products and services to customers.

Yahoo has tapped into this to some extent with their Newspaper Consortium.  But I'm thinking of something bigger with a lot more potential.  I'm thinking of something akin to Microsoft's partner channel.  Microsoft doesn't sell directly to customers as a focus of their business.  Instead, they employ a variety of resellers to serve as front-line help, sales, and support for Microsoft products.

It's a radical idea, but it makes a lot more sense to me than hanging on to an old way of doing business.

On a less radical front, I do think that newspapers could be an effective reseller of products that help local businesses reach customers.  Just about all local businesses need help advertising themselves in their local market.  Local media can help make that a reality.  That's why we're beginning to offer our products MinutesNotice to select local media families.  I think it's a model that can help newspapers and local television companies find margin where there simply wasn't any before.  More to come as we progress.  For more information, check out our recently improved web site.

How Newspapers & Local Media can "Out-Google" Google

 

Google's financial success can explained fairly simply. When people are searching for something on Google, they have a certain mindset. They are looking for something - some sort of knowledge. They are actively pursuing it, not passively consuming it. Some people, it turns out are searching for something to buy or a place to buy it.  Those people are perfect targets for the ads that appear on the right side of the screen. Google calls these ads the "Search Network" So perfect, in fact that it's not uncommon to see those ads clicked by 3-7% of all Google users.

 

Contrast that with a different situation. Google also shows ads on other websites - they call this the "Content Network". Message boards, news sites, online magazines. They're exactly the same ads that show on Google's search page, but they get click through rates closer to 0.05% than 5%. Why? Because someone passively clicking around the internet is not actively looking for anything at all. The difference in consumer behavior is striking. 100X increases in click through rate are not uncommon between the Search and Content networks.

 

So how can newspapers be more like Google's Search Network and less like the Content Network?

 

By reaching users when they are in a search mindset. No, newspapers should not, and frankly cannot, compete with Google's search functionality. But they do have something that Google does not. Local knowledge.

 

Newspapers can use that local knowledge to drive search-minded traffic to their sites. For example, you might be at the office and wondering where to go eat lunch. You know all of the places within a mile or two, and have eaten at most of them. It would be handy to know which ones had specials running today to help break the indecision. Without a lot of effort, a specialized hyperlocal site could be created with the sole purpose of aggregating lunch specials by neighborhood. People who go to that site will be actively looking for a place to eat. The local paper knows whom to approach to sell ads on the site, and can do so effectively with a knowledgeable sales force. The result? A massive increase in advertising effectiveness.

 

Another example: Here in Austin, we have two major music festivals each year. South By Southwest and Austin City Limits. You can bet there are specific industries that are just begging to get in front of the festival attendees. Many of those concert goers are from out of town and need  help with basic things. Where to eat? Where to stay?  Where are the best local bars? These are all questions that newspapers can answer - both with content and with intelligent advertising.

 

The goal is to reach a consumer who is asking a question, not a consumer who is killing time.

 

With a little imagination and planning, newspapers can find ways to drive search-minded traffic to their sites. It's not an overnight solution, but it is durable solution with lots of growth potential.

 

This is one area where newspapers can and should out-Google Google.

The Dallas Morning News' "Premium Value" Strategy

Sunday, the Dallas Morning News published an article on how they are modernizing to become a 21st Century Newspaper.  I thought I'd share some of the highlights of that plan & comment.

• increased pricing on print newspaper -- raising rates as much as 43% on home delivery,
• digital "e-EDition" -- $12.99/month for an electronic replica of the printed paper.
• niche advertising opportunities via specialty publications -- targeting high income, Spanish speakers, and young adults with new niche publications.

They've also done some interesting work with NeighborsGo, a hybrid print/online hyperlocal property.

All of these things are great moves designed for more experimentation.  Nobody has the answers, but that isn't stopping the Dallas Morning News from doing new things to see what will work.  Kudos to the team there for dealing aggressively with an ambiguous future.

A Few Interesting Articles

I thought I'd share a few interesting links from last week about the future of newspapers.  Enjoy.

Google's Eric Schmidt's commentary on newspapers -- clearly Google has taken a lot of grief for the troubles of the newspaper industry.  Certainly, Google has wrenched economic value from newspapers not to mention a lot of other types of businesses -- but local media folks would probably do a lot better listening to Google than fighting Google.

Clay Shirky pointed out that a lot of "local newspapers" don't really have a lot of truly local content.  Yep.  You'll get no argument here.  This is why I've suggested before that a lot of newspapers can get unique content through crowdsourcing and other lower cost methods than they've perhaps used for many years.  Newspaper problems are fixed if you solve both the top and bottom line, and that's going to be painful on a few levels.

Finally, Fred Wilson mentioned something that we've seen for the better part of a year -- if local media is to survive, it needs to take advantage of its current (and possibly fleeting) local advertising sales force advantage.  Local media companies may very well survive as resellers of third-party or proprietary technologies that further monetize their local news audience.  More on that later!